# The Importance Of Win Rate

#### AlphaOverBeta

##### Newbie
4 0
How important is the win rate when trading stocks, futures or any other asset class?
If you lose more than 50% of the time, does that necessarily means that the strategy is a losing strategy?
Much was written about the number of successful trades AKA win rate, but how important is it ? should a strategy wait to trade live only if its above a certain number, and only then will it trade live?
The win rate is a simple formula describing numerically the ratio between winning trades and total trades, so a success rate of 65% means that 65 trades of every 100 trades are winning trades.
Let’s consider a simple formula:
WIN rate X WIN Avg. – Loss rate X Loss average = Avg. Pnl per trade
And this is the more important aspect of trading, to increase the average profit per trade, not the number of winning trade.
This ratio is called the trade average ratio and is the average of the winning amount per trade divided by the average loss per trade.
Now the questions shift to how to control and amount lost and the amount in profits? That’s risk management – using stop loss and take profit methods, plus positions sizing methods where you actively manage an open position while the position is open in the broker’s account can dramatically increase the final outcome.
In Alpha Over Beta we trade a number of trading strategies with a win rate of about 40%, now that you know that this is not the only parameter to look at, you understand that by managing an open position, reducing when it goes against us and increasing when going in favor, we are able to increase the average win amount and reduce the average loss amount.

In the above chart, we see the importance of the win average ratio, for a win average ratio of 1 you start winning only of you have a win rate of above 50% but with a win average ratio of 1.6 you start winning with a trading strategy that has a win rate of 33% !
So the next time someone posts or twits that they have a winning formula with 95% win rate, don’t get excited and ask what is their average win and loss amount.
Alon

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